Bank lending slows in March as rate hikes bite

MANILA, Philippines — Bank lending continued to grow in March, albeit at a slower pace as loan growth is expected to soften because of the Bangko Sentral ng Pilipinas’ interest rate hikes that were meant to fight inflation.

Excluding lending among each other, outstanding loans of universal and commercial banks advanced 10.1% year-on-year in March. This was slower than the 10% outturn recorded in the previous month, the central bank reported on Monday.

Data showed this was the 20th straight month of growth amid the BSP’s interest rate hikes to tame rising inflation. Month-on-month, credit inched up 0.2%

At the same time, more money circulated in the domestic economy during the month. A separate BSP report also released on Monday showed M3, the broadest measure of money supply, rose 6% on-year to P16.2 trillion in March. 

Sought for comment, Domini Velasquez, chief economist at China Banking Corp., noted that credit growth could soon slow down. Interest rates currently stood at 6.25%. 

“This might be due to the lagged impact of rate hikes which started May last year. Moving forward, we will likely see a deceleration in bank lending growth, especially in sectors for production, since we expect the BSP to keep its policy rate relatively tight this year,” she said in a Viber message.

Interest rate adjustments typically take 12 to 18 months before the domestic economy feels the effects. This was the case in 2021, which saw bank lending snap a losing streak once BSP slashed interest rates to 2% in November 2020.

That said, data broken down showed loans to businesses rose 8.9% in March on the back of higher loan uptake across industries. Double-digit increases were observed in loans handed out to electricity, gas, steam, and airconditioning supply, wholesale and retail trade, and repair of motor vehicles and motorcycles and financial and insurance activities, as well as single-digit loan growth from manufacturing and real estate activities in March.

Velasquez projected consumer loans to maintain solid footing, as data showed consumer loans jumped 21.3% in March, much like in February. 

“For consumer loans, we expect credit card loans to remain resilient as Filipinos move to cashless lending and take advantage of deferred payments,” she added.